Private SaaS companies sell for 4.5x, with premiums for size

10/23/2016By Sammy Abdullah, CFA

An investment bank puts out fantastic data every quarter about the SaaS industry. They look at public companies and private transactions to get a sense of the M&A market for SaaS. The public company information is available, but the private company information is much harder to come by. Below, I present Software Equity Group’s M&A data for private SaaS companies as well as a few observations.

-As you can see, private SaaS businesses have been trading for ~4.5x TTM revenue for the past three quarters. On the public side, there were 4 announcements of acquisitions all of which traded north of 4.5x TTM revenue, but remember, the premium multiple is often being driven by the size of the acquiree, as Software Equity Group points out.

-The table above shows the significant premiums higher revenues can garner: for businesses with less than $5mm of TTM revenue, the multiple is only 2.9x whereas for businesses earning $20mm+ of revenue, the multiple is north of 4.3x. The lesson here is to really focus on getting to $20mm+ of revenue before selling in order to maximize the valuation multiple.

If you’re not getting Software Equity Group’s full report, reach out to them. The slides above are the ones that really stood out to me, but the full 76 page report is worth the read.